As a junior analyst, there is an understandable impulse to get more of your ideas into the portfolio, and that can lead you to gloss over the weaknesses of a stock you’re recommending. You’ve spent a lot of time on the research, you believe there is a compelling opportunity, and you don’t particularly want to spend your pitch explaining all the ways it could go wrong. But a good PM is going to look for those weaknesses, so you’re much better off having thought them through and being prepared to discuss them than hoping the conversation stays on the parts of the idea you like.
Very few investments are obvious no-brainers. Most have some combination of attractive fundamentals, an interesting setup, and risks that could keep the thesis from playing out as expected. Part of your role as an analyst is to weigh those considerations and help the PM understand why, on balance, you believe this particular opportunity merits portfolio capital. Presenting risks in a stock pitch means identifying what could undermine the thesis, explaining the potential downside, and discussing the evidence that makes you willing to take those risks.
Which risks should you discuss in a stock pitch?
Prioritize the risks that could undermine the assumptions driving your recommendation or make the potential return unattractive relative to the downside. If your thesis depends on margins expanding more quickly than consensus estimates project, for example, spend time understanding what developments or events could prevent that expansion from happening. Perhaps competitors are adding capacity, or perhaps the cost savings you expect will have to be reinvested in pricing. Being able to explain why you disagree, and quantify where your estimates go if you’re wrong, is considerably more useful than putting “competitive risk” on a slide and moving on.
What disqualifies an idea will depend partly on the strategy. A near-term catalyst may matter a great deal to one PM, while another is more concerned with whether the business can compound earnings over several years. In either case, you want to understand the weaknesses that matter to the investment you’re actually recommending, rather than arrive with a generic list of risks that could apply to almost any company.
To find those weaknesses, it’s useful to take the mindset of trying to kill your own idea before you ever present it. That may sound counterproductive when you’re hoping to get the stock into the book, but finding a problem before the pitch gives you the opportunity to research it, understand its significance, and decide whether the idea is still worth pursuing. You may conclude that the concern is manageable,
that you need a better entry price, or that you should move on to something else. Developing the mentality of killing your own ideas first could help you turn two conversations into a PM into just one.
How do you discuss risks and mitigants in a stock pitch?
Discuss risks and mitigants together by explaining what could go wrong, why you are willing to invest despite it, and what exposure remains even after considering the mitigating factors. When there is an obvious objection to the idea, address it early rather than leave the listener wondering whether you’ve considered it. Brett Caughran describes the problem with waiting for the listener to raise it in his “Pitch Like a Pro” thread:
“In virtually every stock idea out there, there is a risk case or a weakness. If the listener points that out, there's an awkward ‘gotcha’ moment that puts you on your heels.”
Take a hypothetical homebuilder pitch in a weak housing market. As soon as you introduce the company, the listener may be wondering why you want to own a housing-sensitive business when affordability is deteriorating and demand could weaken further. You can anticipate that reaction by explaining that a deeper, extended housing downturn is a central risk to the thesis, then discussing the company’s financial position and the expectations you believe are embedded in the stock at the current price.
Perhaps the company has the balance sheet to withstand a difficult period, and your work suggests the valuation already reflects a fairly negative earnings outlook. Those would be relevant considerations to discuss, provided you can support them. You’re giving the listener a way to evaluate the concern alongside the opportunity, rather than asking them to put the concern aside while you finish the bullish part of the presentation.
Be careful about how much protection you claim from those mitigants. A strong balance sheet can give a company time to work through an operating problem, but it doesn’t prevent the shares from falling if earnings disappoint. Similarly, a lower valuation may make an investment more attractive without making a deteriorating business a good investment. Explain what the mitigating factor actually addresses and be candid about the exposure that remains unaddressed.
How do you explain the bear case in a stock pitch?
Explain the bear case by connecting a plausible adverse outcome to its effect on earnings, the valuation you would apply, and the resulting potential loss on the position. Your assessment of downside risk is much more informative when it is tied to the assumptions driving your model, rather than presented as a percentage without an explanation of how you arrived there.
Returning to the hypothetical homebuilder, saying that a housing downturn is a risk leaves much of the investment question unanswered and subjects your estimates to the PM’s imagination vs your in-the-weeds work. The PM needs to understand how a deeper downturn would change your earnings assumptions (numerically, not just directionally), what those earnings might be worth, and how that compares with the current share price. If your willingness to own the stock rests partly on the balance sheet or a low starting valuation, that downside discussion should show how those considerations affect your assessment rather than treat them as reasons to dismiss the bear case.
There is a fine line between advocating for an idea and becoming so invested in the recommendation that you stop giving the other side a fair hearing. You want to make a clear, data-supported call, while remaining open to the possibility that a concern you’ve judged manageable could turn out to be more important than you thought. Giving the bear case enough attention helps the listener assess that judgment alongside the opportunity you’re presenting.
How do you show conviction in a stock pitch without sounding overconfident?
Show conviction by making a clear recommendation supported by your research, while acknowledging what could make you wrong and remaining willing to reconsider an assumption. Presenting both sides does not mean you should become so equivocal that the PM cannot tell what you recommend. The degree of conviction you express should reflect the strength of the opportunity, rather than your desire to get another idea into the portfolio. As Brett explains in Analyst Academy’s “Pitch Like a Pro” module, in a passage lightly edited for clarity:
“Part of gaining credibility with your PM is figuring out how to modulate your conviction. If you can modulate your conviction appropriately, that PM is going to listen a lot more when you are pounding the table.”
When a PM challenges an assumption, try to engage with the substance of the question without getting defensive. Looking for flaws is part of the process of vetting an investment, and a question you cannot answer immediately may point to useful additional work. If you’re unsure, say so, look into it, and follow up rather than trying to improvise an answer. Don’t let your PM bucket you into hallucinating like an LLM.
Over time, the ability to discuss weaknesses openly is part of building your PM’s trust in your recommendations. You’re showing the PM that when you bring an idea forward, you’ve spent time considering the reasons it might fail as well as the reasons it might work and you present your idea net of these headwinds and tailwinds. Developing that research process and learning to communicate the resulting thesis are central parts of Fundamental Edge’s Analyst Academy.
About the Analyst Academy instructors
Brett Caughran Founder & Head Instructor
Brett brings 13 years of buyside experience at Maverick, D.E. Shaw, Citadel, Bell Rock (fund launch), Two Sigma and Schonfeld along with experience teaching FIN 494 “the hedge fund analyst process” at Arizona State University. He founded Fundamental Edge in 2022 to help redefine training on the buyside.
Andrew Carr Analyst Academy Instructor
Andrew brings ~7 years of buyside experience at Balyasny, ExodusPoint, and Strycker View Capital, and years of experience coaching candidates to seats at single-manager, long-only and multi-manager firms. Having made a career change and changed firms several times, Andrew understands the challenge of recruiting and the benefit of guidance.